Insider Weekends: Chamath Palihapitiya Sells $213 Million Worth Of Virgin Galactic

Welcome to edition 558 of Insider Weekends. An impressive rally on Friday helped the S&P 500 avoid a second week of losses and the index managed to claw back losses from earlier in the week to end with a gain of almost 1%. The Nasdaq was not quite as fortunate and ended up losing 2% for the week despite a small comeback on Friday. The rotation from growth to value continues unabated with the divergence between the S&P 500 Value ETF (SPYV) and the S&P 500 Growth ETF (SPYG) exceeding more than 10% over the last month as you can see from the chart below.

SPYV vs. SPYG One Month Chart

SPYV vs. SPYG One Month Chart

Insiders used the volatility to start buying and insider buying increased significantly last week with insiders purchasing $231.56 million of stock purchased compared to $32.72 million in the week prior. A large portion of this was a $90 million purchase by a Director and 10% owner of medical devices company Alphatec Holdings (ATEC). Selling on the other hand decreased  a little with insiders selling $4.65 billion of stock last week compared to $4.82 billion in the week prior. This is still well above what we normally see with insider selling. 

Sell/Buy Ratio: The insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by total insider purchases that week. The adjusted ratio for last week dropped to 20.09. In other words, insiders sold more than 20 times as much stock as they purchased. The Sell/Buy ratio this week compares favorably with the prior week, when the ratio stood at an unusually high 147.22.

Note: As mentioned in the first post in this series, certain industries have their preferred metrics such as same store sales for retailers, funds from operations (FFO) for REITs and revenue per available room (RevPAR) for hotels that provide a better basis for comparison than simple valuation metrics. However metrics like Price/Earnings, Price/Sales and Enterprise Value/EBITDA included below should provide a good starting point for analyzing the majority of stocks.

Notable Insider Buys:

1. Enterprise Products Partners L.P. (EPD): $23.16

Director Randa Duncan Williams acquired 677,860 shares of this oil & gas midstream company, paying $22.71 per share for a total amount of $15.39 million. These shares were purchased indirectly by various trusts.

Ms. Williams is the Chairman of Enterprise Product Partners, a firm her father founded in 1968. She started actively buying shares on the open market in December 2019 and accelerated her purchases in Q1 2020 buying at prices ranging from the high $20s to as low as $11.12 as you can see here. We wrote the following about her purchases in an article titled Insider Weekends: Insider Buying At Another Midstream Energy Company in December 2019,

This is the fourth week in a row energy midstream companies have made our list of notable insider purchases. We wrote about Kinder Morgan (KMI) multiple times in the past, featured the insider purchase by Bill Greehey of NuStar Energy (NS) last week and are now seeing insider buying in one of the largest energy midstream companies.

The entire sector has been hard hit in the last five years as you can see from the chart below and some of the larger midstream companies have used the downturn to increase their acquisitions, including those of bankrupt smaller companies, which is often a sign that the bottom is near.

One way to avoid betting on a single midstream company, increasing the distribution yield and not worry about K-1 tax forms, is to consider an instrument like the Alerian MLP ETF (AMLP). It has over $7 billion in assets under management, is fairly liquid (average daily volume of 21 million shares traded over a three month period), sports a dividend of 10% and has an expense ratio of 0.85%. The ETF gives you exposure to both Enterprise Product Partners (its top holding) and NuStar Energy but does not include Kinder Morgan as KMI is no longer a master limited partnership (MLP) but has a traditional C corporation structure.

EPD, NS, KMI and AMLP 5 Year Chart

EPD, NS, KMI and AMLP 5 Year Chart

Besides paying an expense ratio that is higher than most ETFs, the other downside of the AMLP ETF is a concentrated portfolio of just 22 positions and MLP companies increasingly choosing to convert into C corporations thanks to the lower corporate tax rate that went into effect in 2018. The ETF has performed worse than EPD, KMI and NS over the last 5 years and especially during the last year.

In August 2020, we wrote the following after an insider purchase at Kinder Morgan (KMI).

When working through all the insider purchases for the month of July for our monthly newsletter for premium members, I was struck by the fact that three of the top 5 insider purchases in the month were in the energy sector. These three purchases were for an energy production company, an energy pipeline company (midstream) and for an energy services company. The following chart that I included in the August newsletter shows just how hard hit the energy sector has been this year.

CLR, XLE and SPY Year-To-Date Chart

CLR, XLE and SPY Year-To-Date Chart (source: Yahoo Finance)

The way I see it is that along the risk spectrum, the midstream companies that transport oil are the lowest risk of the group, followed by the energy exploration and production companies and finally the oil services companies. Obviously this assumes that the rebound in oil prices we have seen during the last three months is likely to continue and that economic activity will pick up significantly once this pandemic is over.

There are obviously unique situations that apply to each segment of the energy sector such as the news that a U.S. district court ruled that Energy Transfer LP’s Dakota Access pipeline will have to shut by Aug. 5 on account of environmental concerns. Shell Midstream Partners also indicated last week that it is experiencing a drop in volume on its pipelines.

There are opportunities in this hard hit sector but there are very good reasons for the sector’s current struggles. Being a tourist in this sector could easily get you burnt. I personally decided to add to my position in the midstream Alerian MLP ETF (AMLP) during the downturn in April and am now looking into an energy producer.

The interesting thing about Ms. William’s purchase last week is that according to the footnotes of the form 4 filing, she also sold $15 million worth of Series A Cumulative Convertible Preferred Units that she had purchased on September 30, 2020. This transaction where she sold the preferred unites for $15 million and purchased $15.39 million worth of common units was not a conversion of her preferred units to common units and it appears that she purchased the common units on the open market.

You can view the list of recent insider transactions for Enterprise Products Partners L.P. here.

P/E: 13.52 Forward P/E: 11.3 Industry P/E: N/A
P/S: 1.86 Price/Book: 2.08 EV/EBITDA: 10.51
Market Cap: $50.53B Avg. Daily Volume: 8,441,967 52 Week Range: $10.27 – $23.58

2. Teledyne Technologies Incorporated (TDY): $387.15

Shares of this aerospace, defense and industrial instrumentation company were acquired by 2 insiders:

  • Executive Chairman Robert Mehrabian acquired 10,000 shares, paying $361.54 per share for a total amount of $3.62 million. These shares were purchased indirectly through a trust.
  • Executive Vice President Jason VanWees acquired 3,000 shares, paying $357.48 per share for a total amount of $1.07 million. Mr. VanWees increased his stake by 8.21% to 39,555 shares with this purchase.

You can view the list of recent insider transactions for Teledyne Technologies Incorporated here.

P/E: 36.45 Forward P/E: 29.9 Industry P/E: 377
P/S: 4.64 Price/Book: 4.43 EV/EBITDA: 23.17
Market Cap: $14.33B Avg. Daily Volume: 316,467 52 Week Range: $195.34 – $413.31

3. Agree Realty Corporation (ADC): $64.47

Shares of this retail REIT were acquired by 5 insiders:

  • Director John Rakolta Jr. acquired 20,000 shares, paying $63.11 per share for a total amount of $1.26 million. Mr. Rakolta increased his stake by 8.49% to 255,613 shares with this purchase.
  • Executive Chairman of Board Richard Agree acquired 10,000 shares, paying $63.77 per share for a total amount of $637,700. These shares were purchased indirectly through a trust.
  • President & CEO Joey Agree acquired 7,870 shares, paying $63.61 per share for a total amount of $500,611. Mr. Agree increased his stake by 1.80% to 444,151 shares with this purchase.
  • Chief Operating Officer Craig Erlich acquired 2,000 shares, paying $63.74 per share for a total amount of $127,480. Mr. Erlich increased his stake by 9.96% to 22,088 shares with this purchase.
  • CFO, EVP & Secretary Simon Leopold acquired 2,000 shares, paying $63.75 per share for a total amount of $127,500. Mr. Leopold increased his stake by 12.88% to 17,529 shares with this purchase.

You can view the list of recent insider transactions for Agree Realty Corporation here.

P/E: 37.05 Forward P/E: 34.48 Industry P/E: 67.43
P/S: 16.46 Price/Book: 1.53 EV/EBITDA: 24.77
Market Cap: $4.09B Avg. Daily Volume: 681,811 52 Week Range: $45.23 – $76.18

4. Cortexyme, Inc. (CRTX): $37.99

Director David Lamond acquired 50,000 shares of this biotech company, paying $35.34 per share for a total amount of $1.77 million. These shares were purchased indirectly through a trust.

You can view the list of recent insider transactions for Cortexyme, Inc. here.

P/E: N/A Forward P/E: -11.37 Industry P/E: N/A
P/S: N/A Price/Book: 6.52 EV/EBITDA: -11.98
Market Cap: $1.12B Avg. Daily Volume: 332,967 52 Week Range: $26.661 – $58.99

5. Kaleyra, Inc. (KLR): $16.92

Director Emilio Hirsch acquired 85,000 shares of this cloud communications platform, paying $19.03 per share for a total amount of $1.62 million. These shares were purchased indirectly by EFFE PI Societa Semplice.

You can view the list of recent insider transactions for Kaleyra, Inc. here.

P/E: N/A Forward P/E: N/A Industry P/E: 55.30
P/S: 3.58 Price/Book: N/A EV/EBITDA: -22.37
Market Cap: $527.06M Avg. Daily Volume: 536,644 52 Week Range: $3.8 – $20.755

You can view the full list of purchases from this Insider Buying page.

Notable Insider Sales:

1. Zoom Video Communications, Inc. (ZM): $337.43

Shares of Zoom Video Communications were sold by 3 insiders:

  • Director Daniel Scheinman sold 915,451 shares for $354.90, generating $324.89 million from the sale. These shares were sold indirectly by various trusts.
  • Director Jonathan Chadwick sold 150,000 shares for $351.58, generating $52.74 million from the sale.
  • Director Carl M. Eschenbach sold 74,800 shares for $347.83, generating $26.02 million from the sale.

You can view the list of recent insider transactions for Zoom Video Communications, Inc. here.

P/E: 149.97 Forward P/E: 82.5 Industry P/E: 55.30
P/S: 37.15 Price/Book: 25.14 EV/EBITDA: 134.88
Market Cap: $98.49B Avg. Daily Volume: 6,050,334 52 Week Range: $100.88 – $588.84

2. Virgin Galactic Holdings, Inc. (SPCE): $27.29

Director Chamath Palihapitiya sold 6,200,000 shares of this integrated aerospace company for $34.32, generating $212.77 million from the sale.

You can view the list of recent insider transactions for Virgin Galactic Holdings, Inc. here.

P/E: N/A Forward P/E: N/A Industry P/E: 377
P/S: 27168.9 Price/Book: N/A EV/EBITDA: -21.84
Market Cap: $6.47B Avg. Daily Volume: 21,173,281 52 Week Range: $9.06 – $62.8

3. The Estée Lauder Companies Inc. (EL): $292.89

Shares of this personal products company were sold by 2 insiders:

  • Chairman, Clinique Labs LLC Ronald S. Lauder sold 360,000 shares for $291.49, generating $104.94 million from the sale.
  • Group President, International Cedric Prouve sold 14,753 shares for $293.81, generating $4.33 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.

You can view the list of recent insider transactions for The Estée Lauder Companies Inc. here.

P/E: 115.9 Forward P/E: 42.08 Industry P/E: 48.42
P/S: 7.49 Price/Book: 19.59 EV/EBITDA: 39.06
Market Cap: $106.25B Avg. Daily Volume: 1,355,465 52 Week Range: $137.01 – $298.31

4. Snap Inc. (SNAP): $57.43

Chief Executive Officer Evan Spiegel sold 1,542,228 shares of this camera company for $64.87, generating $100 million from the sale.

You can view the list of recent insider transactions for Snap Inc. here.

P/E: N/A Forward P/E: 97.34 Industry P/E: 40.02
P/S: 34.56 Price/Book: 37.05 EV/EBITDA: -112.49
Market Cap: $86.62B Avg. Daily Volume: 22,267,631 52 Week Range: $7.89 – $73.59

5. Freeport-McMoRan Inc. (FCX): $35.02

Director Gerald J. Ford sold 2,320,000 shares of this copper company for $34.71, generating $80.53 million from the sale. These shares were sold indirectly by various trusts and entities.

You can view the list of recent insider transactions for Freeport-McMoRan Inc. here.

P/E: 85.41 Forward P/E: 13.07 Industry P/E: 38.64
P/S: 3.6 Price/Book: 5.02 EV/EBITDA: 16.19
Market Cap: $51.13B Avg. Daily Volume: 22,239,442 52 Week Range: $4.82 – $39.1

You can view the full list of sales from this Insider Sales page.

The list of all insider purchases and sales by management people is only available to InsideArbitrage Premium members.

Disclaimer: I hold long positions in Alerian MLP ETF (AMLP), Zoom (ZM) and Freeport-McMoRan Inc. (FCX).Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.

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